Insurance IFRS and Solvency II

The opportunities and challenges that insurers should grasp

The new IFRS Insurance requirements introduce an unprecedented level of non-discretionary efforts impacting finance and with extensive ramifications across the entire insurance enterprise. This situation offers the opportunity to identify and seize benefits in addition to the implementation of a fully compliant financial reporting infrastructure.

Insurers face the challenge of balancing mandated change with cost containment and benefit realization. The overlap of Solvency II and IFRS Insurance requirements presents Strategic Synergy Benefits (SSBs) to insurers which are capable of seizing them.

Deloitte UK Partner, Francesco Nagari, observed that insurers that addressed the operational impacts arising from the change brought about by Solvency II are ideally placed to prepare for the implementation of IFRS Insurance requirements and create a sustainable infrastructure capable of dealing with both set of requirements at the same time. The journey to seize SSBs must start now if a low overall implementation risk is desired.

A low risk implementation strategy ensures that an insurer’s Operating Model adapts to these sequential and often overlapping material changes in an efficient, effective and sustainable manner

The Solvency II and IFRS Insurance regulations have evolved in late 2012 from a clear sequential scenario to a more complex timetable with major IFRS changes occurring before and after the expected Solvency II effective date "A Target Operating Model" challenge is to create the right framework to enable the realization of the SSBs.

How can European Insurers leverage their solvency II investment?

These are the synergies that exist between Solvency II and IFRS Insurance and ways on how the Insurers can leverage their investment through Solvency II.

Solvency II and IFRS 4 Phase II share common features that provide a strong business case for an IFRS 4 Phase II implementation that is routed via the upgrade of the Solvency II infrastructure

Systems that European insurers have built in 2012 are based on designs that took into account only the Solvency II requirements.

IFRS-proofing the Solvency II infrastructure analyses the design structure of the Solvency II infrastructure against the IFRS requirements delivering the elements that could be turned into the IFRS implementation blueprint.

Thanks to the transparent standard setting process at the IASB the IFRS requirements are known to a significant extent. The extensive discussion around them suggests that they will not materially change between now and the publication of the final rules.

Deloitte has built tools and methods to overlay the IFRS requirements on to those from Solvency II to identify those “fatal flaws” in the construction of the Solvency II system that will make it impossible to meet a particular IFRS requirement.

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/about for a detailed description of DTTL and its member firms.